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Weapons of mass disruption

Weapons of mass disruption

1. Introduction

“Disruption” is the buzzword at the moment, whether you are coding in a startup hackathon or attending a board meeting at a FTSE 100 Company.

The concept has been around for a while and started gaining popularity after Clayton Christensen wrote his first book (in 1997): The Innovator’s Dilemma, where he coined the phrase “Disruptive Innovation”. However, the volume and pace of disruption has increased since then, spurred on by new technology.

For the purpose of this article, I define industry disruption as:

“an industry or sector that is undergoing massive change, where the rules of how to best serve customers profitably are being fundamentally rewritten”.

The cause of such disruption generally stems from a new technology. It is however important to note that it is not the technology itself that is inherently disruptive, it is rather the new business models that are enabled by the technology that cause the disruption. For instance, the underlying technology platform of Uber is not disruptive per se, it is how the platform is used to recruit and match drivers with passengers that make it disruptive.

This article has been written for both potential disruptors (such as tech-startups) and industry incumbents who want to try and defend against disruption or even disrupt their own industry (before someone does it to them).

The article is laid out as follows:

> What are the main drivers of disruption

> On that basis, which industries are most under threat of disruption

> What are the 5 main disruption models that are used

> Conclusions as to how to use this information as an industry incumbent (under threat of being disrupted) or a disruptor. (NOTE - there are two links to free access to Disruption Playbooks for incumbents and disruptors in this section - don't miss them!)

2. Drivers of disruption

There are some key elements that drive disruption. The first are internal industry factors that make that industry more, or less, susceptible to disruption. The second are innovation factors - that is external trends creating innovations that might capitalise on the industry factors in the first group.

2.1 Industry factors

Although almost any industry or sector is open to disruption, there are a number of factors that will make it more susceptible. We break them down into three broad areas

> Products that are, or could be, commoditised (branded parts and accessories like Caterpillar air-filters)

> Under-utilised assets (sharing economy in general, e.g. BlaBlaCar)

> Legal and regulatory issues (which work in the opposite direction of the above i.e. tend to slow down disruption).

2.2 Innovation factors

These are facilitating drivers (mainly technology-related) that interact with the above industry factors and reinforce them. It is important to re-emphasise that it is normally not the technology itself that is the disrupter; it is the new business model that is enabled that causes disruption.

These innovation factors include:

New technologies. The key ones are described below in a chart from the McKinsey Institute, although we believe they may be missing a few critical ones such as block chain technology.

Technologies driving disruption

Rapid dissemination of technology allowing for easy adoption and transference to other areas e.g. platform technology and access to (plus mining of) big data sets, being two examples.

3. Disruptable industries

Almost any industry is open to disruption - even if it has already been disrupted! However, considering the industry factors described earlier, it is quite easy to predict those at most risk. The Harvard Business Review considered this (see chart below) and identified 13 industries open to digital disruption.

Disruptable industries HBR

Here at Genesis-Disrupt, we have identified our top 4 to be:

> Banking

> Automotive

> Insurance

> Health care

This is where we see the greatest changes likely in the shortest period of time and will have a focus on these in our next few articles.

4. Models of Disruption

Although we recognise that Christensen’s description of how an industry gets disrupted is perhaps the purest (and we use it as our first model), there are variations around this theme that are sufficiently different that makes it worth describing them. Some models may be a hybrid of more than one and undoubtedly more will unfold over time; however here we suggest 5 models in an easy-to-read format:

I need to acknowledge CB Insights here whose reporting is a magnificent source of knowledge.

4.1 “Classic”: disruptive innovation

Christensen's classic disruptive innovation

4.2 Disrupted by 1,000 cuts

Disruption Model: 1,000 cuts

4.3 Full stack disruption

Disruption model fullstack disruption

4.4 Value-chain control

Controlling the value chain

4.5 Industry redefinition

Redefining the industry - a disruption model

5. Conclusions - lessons for incumbents and disruptors

5.1 Lessons for incumbents

After an industry has been disrupted, it nearly always seems as if it should have been obvious. Kodak did not respond to the digital threat and went bankrupt in 2012. But it is worse than that - they actually had an engineer inside the organisation that invented a digital camera - and still they ignored it.

The question is then: why is disruption so hard to see coming? The answer lies in the mindset of the incumbent business. There are a number of reasons why a threat might be ignored:

> To combat a new model, it often means cannibalising your own business. It would have been hard for Kodak to destroy its film business to start selling digital products.

> Disruption is not an event, it is a process - and not even a linear one at that. Using the “boiling frog” analogy, we often do not even know the water is getting hot before our capacity to react has disappeared.

> It is hard to run a legacy business at the same time as you run a model disrupting that business. Metrics and objectives start getting very messy.

> With many new business models, the necessary assets of the old model will not be necessary and its hard to give those up. The world’s biggest accommodation company (AirBnB) does not own one lodging establishment!

> We all have mental models - lenses through which we perceive the world. To identify a threat from a new player often requires changing these lenses e.g. Re-defining the structure of the industry in which you are playing.

> A subset of the above is that the architects of the incumbents’ business model are frequently the management and it is really hard to shift their paradigm to challenge the underlying assumptions that went into that model e.g. Using AirBnB again, no one considered it possible that we would open our homes to complete strangers.

> Potential disruptors seem to be all around - some of which might be successful, many of which will crash and burn. So, which ones should the incumbent consider combatting and which ones to ignore? Often the default is: let’s “wait and see” which is frequently the worst option.

Given these barriers to reaction, what should existing players be doing to develop and implement a strategy to defend their business? We at Genesis-Disrupt are putting together a model to help businesses at risk of disruption develop strategies to combat the threat. This will be published in our next blog post, but if you would like an early copy, please click on the box.

As an appetiser, the broad steps include:

> Horizon scanning and threat assessment

> Recognising which of the models described above is most likely in your sector

> Using a systematic process to understand where and how the threat may play out in your markets and sectors

> Recognising the tools and barriers you do have to combat the threat

> Building a self-disruption capability inside your organisation

> Harnessing the power of entrepreneurs to help build your own disruption model.

> Teaching your staff to think like entrepreneurs

5.2 Lessons for disruptors

Disruption per se is not a strategy - although I cannot count the number of startup pitches I have heard in the last few years where the founders are claiming that to be the case. A startup strategy (like a corporate strategy) is all about how the organisation creates and maintains a competitive advantage - a side-effect of which might be the disruption of an industry sector. However, if this disruption is a likely result, then it is critical that the startup understands the competitive dynamics of that industry and builds in contingency plans around a possible reaction from the incumbents. Furthermore an understanding of typical disruption models and patterns will assist the startup in developing their strategy of attack.

Genesis-Disrupt are working on "The Startup's Disruption Playbook" that will help startups learn how to approach a potential disruption, using some innovative tools and approaches. In addition, we will be covering the major disruption patterns that can help you plan your approach based on others’ experience. If you would like to receive an early copy of this, please click the block.

References.

This work is original, but I have been influenced by a number of sources through reading, experience, teaching and interaction. The sources include: